Beyond the Label: Regulatory Arbitrage in Pharmaceutical Market Entry

Beyond the Label: Regulatory Arbitrage in Pharmaceutical Market Entry

Speaker: Charu Gupta (University of Pennsylvania)

Abstract: In regulated markets, high entry barriers create incentives for firms to circumvent regulation or selectively avoid approval for certain products. We provide novel evidence of such regulatory arbitrage in U.S. pharmaceuticals: Firms conduct clinical trials in large patient populations but initially seek approval in smaller, lower-risk markets to reduce regulatory burden. They then rely on off-label drug use to expand demand beyond approved uses. While this approach expedites market entry, it raises policy concerns about treatment adoption without strong supporting evidence. Our findings highlight how regulatory design may induce strategic entry by firms and alter the diffusion of new technologies.